Regulation: CoinSmart CEO and co-founder Justin Hertzman says that government regulatory agencies remain skeptical about the ability of the cryptocurrency sector to regulate itself efficiently.
Regulators around the world are busy developing various approaches to crypto regulation, some of them attempting to ban crypto altogether. If there is no means to do so, such an attitude can hardly be considered efficient enough to manage the identified risks. The digital asset and blockchain sector continues to grow, adding more products and services, so it cannot be ignored.
Is crypto involvement in crime still an issue?
The cryptocurrency industry is nascent, so regulators are confused when it comes to developing standardized compliance practices.
Since digital asset transactions are anonymous or pseudo-anonymous, financial authorities are concerned about the involvement of cryptocurrencies in criminal activities and theft of approvals. Add to that the mixed limited legislative framework and poor expertise. Then, it becomes clear that legislators cannot fully accept the needs and risks of the digital asset industry, without close collaboration with crypto businesses.
Meanwhile, the volume of illicit activities involving cryptocurrencies has declined as a percentage of the total volume, falling from 0.62-0.65% in 2020 to 0.10-0.15% in 2021.
It would be unfair to deny or underestimate the importance of the achievements of the crypto industry in terms of prevention and fight against crimes and other crimes related to the use of digital assets.
Self regulation is essential
Global governments and financial authorities are struggling to reach a consensus regarding digital assets and blockchain regulation. But the crypto sector itself is making significant progress in this direction. In order to establish user trust, crypto companies are working on relevant solutions. This is in an effort to make the industry more transparent and credible.
Back in 2019, the Japan Cryptocurrency Business Association issued its recommendations on initial coin offering regulation. It elaborated on crypto expansion and definitions of utility and security tokens in local exchanges, as well as their regulation.
To promote high standards of conduct in the United Kingdom, a self-regulatory association called CryptoUK was launched in 2018. The organization works directly with policy makers and industry stakeholders. This is to educate them about the digital asset industry and develop a balanced framework for the UK.
regulation and trust
Such initiatives also include Travel Rule Universal Solution Technology (Trust). It is led by American crypto exchange Coinbase. It was launched with the support of trading platforms Kraken, BitGo, Winklevoss Twins-backed Gemini and Fidelity. The Trust takes measures to reduce money laundering by ensuring that members comply with travel regulations while protecting user data.
Initially with only five members, the trust has now signed in more than 30 companies. These include crypto wallet providers, brokerages, exchanges and custodians. They are committed to fighting money laundering in cryptocurrency transactions. This clearly shows the devotion of the industry to make it a safe place.
The organization is now active in Canada and Coinsmart recently joined the trust to promote its Anti-Money Laundering (AML) efforts. In addition to being active in Canada, the US and Singapore, the organization plans to expand into the European Union.
On the other side of the world, the Korea Blockchain Industry Association presented a development paradigm aimed at improving self-regulation. This is following several hacks affecting crypto users at the time.
That said, the Korean crypto exchange will allow users to trade cryptocurrencies only after their identity has been confirmed by traditional financial institutions. Similar to the TRUST project, the measures are expected to bring greater transparency to crypto trading and ensure user safety.
Furthermore, the top five crypto trading platforms in South Korea have just confirmed the creation of a joint advisory body. This includes market monitoring, transaction support and compliance monitoring departments. The general objective of the body is to establish and improve standards in the industry.
Healthy partnership with financial regulators
The more trading platforms and custodians involved in such initiatives, the better compliance exists in the crypto industry. The rules require that exchanges share certain personal information about the sender when they request transactions over a certain amount. This information is sent to another exchange or financial organization, while no user data is stored.
Self-regulatory organizations in the crypto industry have the potential to significantly increase the regulation measured. They may be overseen by government regulators such as the Security and Exchange Commission and the Financial Industry Regulatory Authority.
What’s more, it will allow crypto and blockchain projects to focus more on innovation, as the high degree of uncertainty will be eliminated.
Unlike the heavy regulation that comes from government bodies, such an approach would involve an ongoing exchange of knowledge and expertise. This will ensure that future regulation is developed and introduced that takes into account the needs of businesses in the rapidly growing sector. Simply put, crypto will be the voice of the industry.
About the Author
Justin Hertzman is the CEO and co-founder of coinsmart (NEO: SMRT) (FSE: IIR), a leading Canadian publicly-traded and regulated crypto trading platform, dedicated to making cryptocurrencies accessible to all. Justin has led several companies from the start-up phase to successful exit, including All You Can Eat Internet and Weasel Yoursight.